As crypto and digital currencies take shape — where bitcoin, blockchain, CBDCs and stablecoins jostle against one another for pre-eminence — there needs to be the proverbial adult in the room.
By which we mean: The someone who makes sure that things are safe, secure and trusted.
Ajay Bhalla, president, cyber and intelligence at Mastercard, said that the digital assets ecosystem could only succeed and reach its full potential if there’s trust. That trust extends across and between all of the various stakeholders, from the consumers to the exchanges to the wallet issuers to the FinTechs and financial institutions (FIs) that work together to bring innovation to consumers and commercial settings.
To that end, as reported last week, Mastercard said that it would acquire cryptocurrency intelligence startup CipherTrace in a bid to help crystallize that trust — where the regulatory environs are only going to become more stringent and challenging.
The deal, he said, brings transaction monitoring to “cover all of the crypto and the digital currencies and the NFTs,” Bhalla told Webster, adding that “the way investments are going in this space from a consumer perspective, from financial institutions perspective, from the crypto exchanges perspective, this space is only going to become bigger.”
The landscape, of course, is still fragmented — and that’s putting it mildly. CipherTrace has estimated that more than half of the top 800 crypto providers lack good know your customer (KYC) practices. Beyond that, eight out of 10 top banks “unknowingly harbor unregistered crypto money service businesses.”
Consider the fact that though the crypto market is worth around $2 trillion as bitcoins and altcoins gain ground, there’s still roughly a one to one relationship between those coins and networks — i.e., each digital offering is built on its own blockchain (in some cases, there is overlap, but you get the idea).
It’s no secret, too, that the crypto space is a virtual (and we mean virtual in the literal sense) playground for fraudsters. After all, they can cloak themselves in anonymity to attack exchanges, ply their trade via ransomware and other tactics.
The need for trust is an urgent one if digital assets are to be fully embraced.
“Our customers see this as a big opportunity but are nervous about this space,” maintained Bhalla. And PYMNTS’ own studies have found that most consumers would like to use crypto to transact (and yet feel they do not know enough about the holdings themselves to do so).
The financial terms of the deal thus far are undisclosed. Still, the strategic intent is clear: To combine both firms’ cyber ad advanced tech capabilities, bringing artificial intelligence (AI) into the mix to help uncover fraud before It happens.
In terms of the mechanics, the payments network said that, with CipherTrace’s “blockchain forensics” in place, it would differentiate its card and real-time payments framework to benefit both clients and investors worldwide.
CipherTrace’s anti-fraud offerings are centered on anti-money laundering. And by extension, Mastercard can extend to its partners the ability to comply with various regulatory and legal mandates as they build their own digital asset offerings and infrastructure. CipherTrace, for its part, has 150 enterprise clients, spanning traditional FI, crypto exchanges and other firms. Data feeds help monitor transactions tied to virtual asset service providers; the company’s technology also provides risk scoring for those providers.
Bhalla noted that the CipherTrace acquisition is an extension of the firm’s crypto strategy that has been crystallized in recent announcements. Mastercard said it would bring several (as yet unannounced) cryptos on the network beginning later this year and into 2022, extending what Bhalla termed the company’s multi-rail approach to serving all types of transactions, ensuring they are cleared and settled.
Bhalla noted that Mastercard had invested a lot of capabilities in the trust space — in artificial intelligence and identity in cybersecurity.
“Acquiring CipherTrace gives us more capabilities to actually enable newer solutions across the entire crypto space.”